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Company Insolvencies in Brazil: What to Expect?

Panorama Brazil Insolvencies

Restructuring and bankruptcy remain increasingly used procedures


The latest Panorama by global credit insurer Coface focuses on the outlook forBrazil, which is expected to remain weak through 2015. Economic activity in the country remains lackluster, inflation is above targets and interest rates are among the highest in the world. Various indexes show that confidence inBrazilremains down, while the already low investment ratio continues to deteriorate.


To read the full Panorama, click here.


Within this context, it is not surprising that the number of companies that filed for court-supervised restructuring procedures (Chapter XI[1] established in 2005 under the new Bankruptcies Law) has grown significantly in recent years. In 2012, when the economy contracted by 0.8%, there was a 49.5% increase in the number of companies that filed under Chapter XI. During 2013 this increased an additional 17.2%. Although the data for the 12-months up to April 2014 shows a decrease of 11.5%, it is still too early to consider this a rebound due to other weak economic indicators.


In addition to the Chapter XI procedure, rates of bankruptcy (Chapter VII) also began to increase, closing 2013 with an increase of 5%.


Several industries particularly affected by insolvencies


The recent marginal improvement in the total number of companies that filed for Chapter XI does not reflect the situation in all sectors, including Paper/Wood (-3%), Minerals (-15%) and Distribution (-9%[2]). In several other sectors the insolvency situation remains worrying, due to the country’s low level of activity and the difficulties faced by businesses to remain competitive.


  • The food industry is the most affected, with 46% in insolvencies. The main reason for this growth is that companies are using this mechanism as an alternative to financial imbalances.
  • The textiles and clothing industry, which has been facing difficulties due to increasing pressure from imported products, observed an increase of 7%.
  • The service sector, responsible for 59% of Brazilian economic activity, recorded a slight  rise of 2%, and this rate is not expected to decline in the short term.


A weak scenario for companies in 2014 and 2015


GDP fell into negative territory in the first half of 2014, which does not indicate any sign of recovery. Activity is not gaining momentum and is expected to increase by only 0.4% in 2014. Admittedly a slight pickup in growth is expected in 2015, but this will remain well below the long-term average.


Independently of who wins the presidential elections, next year will probably be marked by a series of adjustments to the economy’s relative prices. Interest rates may be raised again to compensate for a higher pressure over prices, arising from the repositioning of oil prices and energy tariffs. The country’s infrastructure needs to rebound in 2015, in order to increase activity in the mediumterm, while the economy is likely to remain in slow mode,” concludes Patricia Krause, Coface Economist for the Latin America region.


[1]Chapter XI was established inBrazil in 2005, under the New Law of Bankruptcies (number 11.101). It is a measure for trying to avoid Chapter VII. Chapter XI protection can be requested either by the company in difficulty, or by one of its creditors. This procedure implicates an intent to restructure the company, under the control of a court and allows the debtor to retain all of its assets, to oppose the demands of its creditors, to postpone the deadline for its payments and to unilaterally reduce its debt.

On the other hand the company is obliged to give detailed information on the progress of transactions on its creditors to the judge. This is the biggest difference between Chapter XI andChapter VIIof the same Law, which involves the end of business activity. In Chapter VII, a judicial trustee is then appointed to sell the assets and organize the distribution of sums recovered partially in order of priority.

[2]Between May 2013 and April 2014, in comparison to the previous period.


Annie Lorenzana

North America
MOB: +1 (407) 221-3496

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